final module 4
TRANSCRIPT
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Earned Value Management Tutorial
Module 4: Budgeting
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Module 4Budgeting
Module 4: Budgeting
Welcome to Module 4. The objective of this module is to introduce you to
Budgeting Concepts and Definitions.
The Topics that will be addressed in this Module include:
Cost/Schedule Baselines
WBS Levels: Control Accounts, Work Packages, Planning Packages
Elements of an Earned Value Contract Baseline
Proposed Cost and the Contract Budget Baseline
Control Account Manager Roles and Responsibilities
Review
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The Budgeting Process
In the previous module,we defined Planning as making decisions with the
following objectives:
Define what will be performed (Statement of Work)
Determine how the work will be structured and tracked (Work BreakdownStructure)
Assign Responsibility for elements of work (Organizational BreakdownStructure)
Schedule the authorized work in a manner which describes the sequence ofwork and identifies significant task interdependencies required to meet therequirements of the program
Now lets discuss Budgeting.
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Module 4Budgeting
The Budgeting Process
The budgeting process establishes a means for developing and tracking thecost goals for all contractually authorized work.
One of the key criteria for establishing an earned value management system isthat all major components of a project must be integrated and baselined.Major components of the earned value management system include scope,
schedule and cost. The cost and schedule performance are measuredagainst a baseline to help track the progress of the project.
But what is a baseline, and how do you establish one?
Lets review the steps required to establish a cost and schedule baseline on thenext page.
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Establish the Schedule Baseline
Project Mgmt
Prelim Design
1.1.1
Title I Design
1.1.2
Final Design
1.1.3
Design
1.1
Procurement
1.2
Construction
1.3
1.4
ACME Project X
1.0
Recall the Work Breakdown Structure from Module 2, which defines aprojects tasks, processes, responsible parties, etc. Establishing the WBS
is the first step in defining the project and in establishing the baseline.
Acme Project Work Breakdown Structure
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Establish the Schedule Baseline
Project Mgmt
Prelim Design
1.1.1
Title I Design
1.1.2
Final Design
1.1.3
Design
1.1
Procurement
1.2
Construction
1.3 1.4
ACME Project X
1.0
Preliminary Design 1.1.1 Jan Feb Mar Apr May
1.1.1.1 Define Specifications & Req.
1.1.1.2 Develop Preliminary Design
1.1.1.3 Review Preliminary Design
1.1.1.4 Incorporate Comments
1.1.1.5 Preliminary Design Complete
Schedule Baseline
Based on the Project Scope and availableresources, the work activities in the WBS are
scheduled to establish the Schedule Baseline.This important step was covered in Module 3.
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Establish the Cost Baseline
Preliminary Design 1.1.1 Hours Jan Feb Mar Apr May
1.1.1.1 Define Specifications & Req. 1,500 1,000
1.1.1.2 Develop Preliminary Design 2,000 2,000
1.1.1.3 Review Preliminary Design 500 500
1.1.1.4 Incorporate Comments 320 320
1.1.1.5 Preliminary Design Complete 1,000
Cost Baseline
Based on the Project Scope and availableresources, the project budget is allocated acrossthe scheduled activities and across time. The
time phased allocation of resources, establishesthe Cost Baseline. Notice in the chart the timephased hours associated with each task.
Project Mgmt
Prelim Design
1.1.1
Title I Design
1.1.2
Final Design
1.1.3
Design
1.1
Procurement
1.2
Construction
1.3 1.4
ACME Project X
1.0
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Integrated Scope, Schedule and Cost
Preliminary Design 1.1.1 Hours Jan Feb Mar Apr May
1.1.1.1 Define Specifications & Req.1,500 1,000
1.1.1.2 Develop Preliminary Design2,000 2,000
1.1.1.3 Review Preliminary Design500 500
1.1.1.4 Incorporate Comments320 320
1.1.1.5 Preliminary Design Complete
1,000
Integrated Cost/Schedule Baseline
The allocation of resources across the schedule foreach element of the projects scope is what creates the
projects integrated baseline. The scope, cost, and
schedule must be fully integrated to be able to performEVM. As the chart shows below , each task has anassociated schedule and time phased cost.
Project Mgmt
Prelim Design
1.1.1
Title I Design
1.1.2
Final Design
1.1.3
Design
1.1
Procurement
1.2
Construction
1.3 1.4
ACME Project X
1.0
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Work Breakdown Structure Reporting Levels
Now lets discuss how the budgeting process and the cost/schedule integration
is accomplished in an earned value environment.
The Work Breakdown Structure is the framework used to facilitate therequirement for integrating these major components. The Work BreakdownStructure is further broken down by Control Accounts, Work Packages, and
Planning Packages.
Lets discuss these three key elements in more detail, starting with Control
Accounts, on the next page.
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Control Accounts
A Control Account is an assigned WBS Level used to monitor the cost and
schedule performance of a significant element of the work. ControlAccounts are also referred to as Cost Accounts. These terms areinterchangeable, however, we will use the term Control Accounts.
A Control Account is a major management control point for:
Cost Summarization
Variance Analysis and Reporting
Responsibility Assignment
Scope Description
Corrective Action Planning
A Control Account Manager (CAM) is responsible for executing the Statementof Work associated with their assigned Control Account(s).
The illustration on the following page depicts the ACME House Project WBSdown to the Control Account Level.
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Control Accounts
For the ACME House project, it was determined that the performance
measurements for the project will be taken at Level 3 (see graphic below).The project manager and the stakeholders must determine the level atwhich the performance measurement will be required.
ACME Housing Corporation
1
House BuildingProject
1.1
Concrete
1.1.1
Framing
1.1.2
Plumbing
1.1.3
Electrical
1.1.4
Interior
1.1.5
Roofing
1.1.6
Level 1
Level 2
Level 3
Control Account Level
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Work Packages
The detail that builds up to the Control Account Level is contained in Work
Packages and Planning Packages. Take a moment now to review WorkPackages.
Work Packages (WP) contain a discrete segment of work below the ControlAccount level that is defined by
a description or brief work statement
starting and ending dates
completion milestone
work-in-process measure
time-phased budget expressed in direct labor (hours and/or dollars),material, other direct costs and subcontract dollars
It is important that the duration of a Work Package be a relatively short span oftime (normally, but not limited to, six months or less).
Now lets take a look at Planning Packages on the next page.
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Planning Packages
Planning Packages reflect a future segment of work within a Control Account
that is not yet broken down into detailed work packages. A planningpackage has a firm budget, estimated start and complete dates, andStatement of Work.
As work becomes more clearly defined, Planning Packages are converted intoWork Packages, with the following constraints. These constraints ensure
the initial budget is used appropriately:
All planning packages are converted into work packages asrequirements are defined, and at a minimum, are scheduled to start atleast one month beyond the current reporting period
Conversion of planning packages to work packages is reviewed by theTeam Leader and documented on a Revision Request (RR)
Any conversion involving a change to the schedule or budget of thecontrol account must be accompanied by an RR
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Work Packages/Planning Packages
Now that you are familiar with work packages and planning packages, take
some time to examine how they appear in the WBS. For the ACME Houseproject, the Work Packages and Planning Packages will be at Level 4 ofthe WBS. This is the level at which detailed budgets will be developed,statused, and then summarized at the Control Account level for reporting.
Work Package / Planning Package Level
Control Account Level
ACME Housing Corporation1
House BuildingProject
1.1
Concrete1.1.1
Pour Foundation1.1.1.1
Install Patio1.1.1.2
Stairway1.1.1.3
Framing1.1.2
Frame ExteriorWalls1.1.2.1
Frame InteriorWalls1.1.2.2
Install RoofingTrusses1.1.2.3
Plumbing1.1.3
Install WaterLines1.1.3.1
Install Gas Lines1.1.3.2
Install B/KFixtures1.1.3.3
Electrical1.1.4
Install Wiring1.1.4.1
Install Outlets/Switches1.1.4.2
Install Fixtures1.1.4.3
Interior1.1.5
Install Drywall1.1.5.1
Install Carpets1.1.5.2
Install Painting1.1.5.3
Roofing1.1.6
Install Felt1.1.6.1
Install Shingles1.1.6.2
Install Vents1.1.6.3
Level 1
Level 2
Level 3
Level 4
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Review
At this point, you should have a comfortable understanding of the following:
The budgeting process establishes a means for documenting and trackingthe cost goals for all contractually authorized work.
The baseline is what cost and schedule performance is measured against.
A Control Account is an assigned WBS Level used to monitor the cost andschedule performance of a significant element of the work.
Detail below the Control Account Level is contained in Work Packages andPlanning Packages.
If you are unsure about any of these concepts, please go back and review,otherwise lets move on to discuss the key elements used to develop,baseline, and manage an earned value project or contract.
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Elements of a Contract Baseline
The contract baseline is comprised of eight key elements:
Work Packages
Planning Packages
Control Accounts
Distributed Budgets Undistributed Budget (UB)
Performance Measurement Baseline (PMB) Management Reserve (MR)
Contract Budget Base (CBB)
Total Contract Cost Profit/Fee
Total Contract Price
Total Contract Price
Total Contract Cost
Profit / Fee
Contract Budget Base (CBB)
Performance Measurement Baseline (PMB)
Management Reserve (MR)
Distributed Budgets
Undistributed Budgets (UB)
The relationship between these eight elements is depicted below. Eachelement is defined on the following pages and is illustrated using the ACMEHouse Building Project.
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Total Contract Price
Total Contract Price is the total negotiated contract cost plus profit/fee.
Work Packages
Planning Packages
Control Accounts
Distributed Budgets Undistributed Budget (UB)
Performance Measurement Baseline (PMB) Management Reserve (MR)
Contract Budget Base (CBB)
Total Contract Cost Profit/Fee
Total Contract Price
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Total Contract Cost
Total Contract Cost is the total negotiated contract cost without profit/fee.
Work Packages
Planning Packages
Control Accounts
Distributed Budgets Undistributed Budget (UB)
Performance Measurement Baseline (PMB) Management Reserve (MR)
Contract Budget Base (CBB)
Total Contract Cost Profit/Fee
Total Contract Price
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Profit/Fee
Profit/Fee is the estimated profit or fee realized by executing the contract orproject. Profit/Fee is not part of the Contract Budget Base (CBB), asdefined on the next page.
Work Packages
Planning Packages
Control Accounts
Distributed Budgets Undistributed Budget (UB)
Performance Measurement Baseline (PMB) Management Reserve (MR)
Contract Budget Base (CBB)
Total Contract Cost Profit/Fee
Total Contract Price
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Contract Budget Base
The Contract Budget Base (CBB) represents the total budget for all authorized
contractual work, minus Profit/Fee. The CBB can only be modified when dulyauthorized changes to the contract are received. CBB is always calculated asfollows:
Work Packages
Planning Packages
Control Accounts
Distributed Budgets Undistributed Budget (UB)
Performance Measurement Baseline (PMB) Management Reserve (MR)
Contract Budget Base (CBB)
Total Contract Cost Profit/Fee
Total Contract Price
Current
negotiatedcontract cost
Estimated cost of additional
authorized unpriced work(yet to be negotiated)
+ = CBB
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Performance Measurement Baseline (PMB)
The Performance Measurement Baseline (PMB) is the time-phased budget
plan against which contract performance is measured. It includes allallocated or Distributed Budgets plus the Undistributed Budget. PMB doesnot include Management Reserve.
PMB = Sum of Control Accounts
PMB = Distributed Budgets + Undistributed Budgets
PMB = Contract Base BudgetManagement Reserve
Work Packages
Planning Packages
Control Accounts
Distributed Budgets Undistributed Budget (UB)
Performance Measurement Baseline (PMB) Management Reserve (MR)
Contract Budget Base (CBB)
Total Contract Cost Profit/Fee
Total Contract Price
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Management Reserve
Once the CBB is established, the Program Manager establishes a
Management Reserve (MR) prior to distributing budgets to the performingorganizations. The purpose of MR is to have a budget for the ProgramManager to allocate for unforeseen problems.
MR is not part of the Performance Measurement Baseline because it is held atthe program level only. Transactions into and out of MR are approved bythe Program Manager. The documentation supporting all MR transactions
is maintained and reported by Program Control.
Work Packages
Planning Packages
Control Accounts
Distributed Budgets Undistributed Budget (UB)
Performance Measurement Baseline (PMB) Management Reserve (MR)
Contract Budget Base (CBB)
Total Contract Cost Profit/Fee
Total Contract Price
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Distributed Budgets
Distributed Budgets reflect the contractually authorized efforts allocated to the
WBS elements.
Distributed Budgets include budgets assigned to control accounts duringbaseline establishment as well as work packages and planning packages.
Distributed Budgets = Budgets assigned to Control Accounts
Work Packages
Planning Packages
Control Accounts
Distributed Budgets Undistributed Budget (UB)
Performance Measurement Baseline (PMB) Management Reserve (MR)
Contract Budget Base (CBB)
Total Contract Cost Profit/Fee
Total Contract Price
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Undistributed Budget
Undistributed budget (UB) applies to contractually authorized efforts not yet
allocated to WBS elements. The UB consists of a budget for authorizedchanges for which there has not been adequate time to plan the change atthe control account level. Undistributed budget is an element of thePerformance Measurement Baseline, but it is not time-phased.
Every effort should be taken to distribute budgets in a timely manner and to
minimize undistributed budgets. Undistributed budgets are controlled by theProgram Manager, and all changes must be documented using an
Undistributed Budget Log.
Work Packages
Planning Packages
Control Accounts
Distributed Budgets Undistributed Budget (UB)
Performance Measurement Baseline (PMB) Management Reserve (MR)
Contract Budget Base (CBB)
Total Contract Cost Profit/Fee
Total Contract Price
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Proposed Costs and the Contract Budget Base Relationship
To better understand the key elements of the Contract Budget Base, lets walk
through the Proposal Development, Negotiations, and Contract AwardPhases. To begin, first ensure you understand the relationship between theproposed cost and the established Contract Budget Base.
Program Funding, the negotiated and/or authorized amount, is based on theestimates developed during the proposal preparation phase. Theseestimates can be modified during the contract negotiation phase. TheProgram Funding amount is used to establish the Contract Budget Baseline(CBB).
A proposed cost estimate and a Contract Budget Base are developed in the
same manner. The resources required to complete each defined element ofwork are developed in terms of hours. These hours are converted to LaborDollars by applying Direct Labor Rates and Indirect Burdens (Direct andIndirect Costs are discussed on the following page). Costs of purchasedmaterials and subcontracts (and applicable acquisition overhead rates) aswell as Other Direct Costs (ODC) are also generated and included in the
proposed amount.
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Direct and Indirect Cost Accounting
As mentioned on the previous page, costs include direct and indirect charges.
Direct CostsCosts applicable to, and identified specifically with, the programcontract Statement of Work.
Examples of Direct Costs: Labor, Travel, Material, Subcontractor Charges
Indirect CostsCharges that cannot be consistently or economically identifiedagainst a specific contract. These are typically calculated by applying ratesand factors to the cost base.
Example of Indirect Costs: Fringe Benefits, Overhead, Material Handling,General & Administrative, Cost of Money.
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Sample Indirect Rate Application
Here is an example of indirect rates applied to prime dollars or direct costs.
Overhead costs are applied to prime dollars to derive the Total Cost. Theapplication of indirect rates and factors is based on a companys accounting
policies and procedures.
Design Engineering Task
Design Engineer Hours 1,000
Design Engineer Rate/Hour 40.00$
Prime Dollars 40,000.00$
Overhead Rate 100%
Overhead Dollars 40,000.00$
Total Burdened Dollars 80,000.00$
G&A Rate 10%
G&A Dollars 8,000.00$
Sub-Total 88,000.00$COM Rate 0.05%
COM Dollars 44.00$
Total Cost 88,044.00$
Fee Rate 10%
Fee Dollars 8,800.00$
Total Price 96,844.00$
Indirect Cost
Direct Costs
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ACME House Cost Proposal Development
By now you should be familiar with the difference in types of costs, but how
exactly do you go about determining costs in a project? Take some time tosee how to develop a proposed cost using the ACME House Buildingproject.
So far in the ACME House Building project, we have:
Defined what will be performed (Statement of Work) Determined how will it be tracked (Work Breakdown Structure)
Now we have to:
Determine the Proposed Total Cost and Price
Assign Labor, Material, ODC, and Subcontractor Resources to the WorkElements.
Apply Burdens and Fee to derive the Total Cost and Price.
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ACME House Cost Proposal Development
To start, we need our ACME House Work Breakdown Structure as shown here.
This insures that we develop cost for only approved project scope.
ACME Housing Corporation1
House BuildingProject
1.1
Concrete1.1.1
Pour Foundation1.1.1.1
Install Patio
1.1.1.2
Stairway1.1.1.3
Framing1.1.2
Frame ExteriorWalls1.1.2.1
Frame InteriorWalls1.1.2.2
Install RoofingTrusses1.1.2.3
Plumbing1.1.3
Install WaterLines
1.1.3.1
Install Gas Lines
1.1.3.2
Install B/KFixtures1.1.3.3
Electrical1.1.4
Install Wiring1.1.4.1
Install Outlets/Switches1.1.4.2
Install Fixtures1.1.4.3
Interior1.1.5
Install Drywall1.1.5.1
Install Carpets
1.1.5.2
Install Painting1.1.5.3
Roofing1.1.6
Install Felt1.1.6.1
Install Shingles
1.1.6.2
Install Vents1.1.6.3
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ACME House Cost Proposal Development
Next, we must develop the Proposal Price. Below is an example of how we
developed the Price for the WBS 1.1.1.2 to Install Patio.
We assigned resources to this task, and based on the Labor Hours, Material,and ODC Dollars, burdened by all the indirect rates, a Total Price of$11,574 has been estimated to complete this task.
This process is used to price each WBS element. On the next page is thecompleted price for the ACME House.
WBS 1.1.1.2 Install Patio
RES CODE Hours Rate/Hour Prime Overhead G&A COM Fee Total Price
Carpenter 40 25.00$ 1,000$ 1,666$ 422$ 2$ 618$ 3,707$Drywall 40 15.00$ 600$ 1,000$ 253$ 1$ 371$ 2,224$
ELEC 4 40.00$ 160$ 267$ 67$ 0$ 99$ 593$
ENGE 20 30.36$ 607$ 825$ 226$ 1$ 332$ 1,991$
Material 0 2,000$ 109$ -$ 1$ 422$ 2,531$
Other 0 500$ 27$ -$ 0$ -$ 527$
Total 104 4,867$ 3,894$ 968$ 5$ 1,840$ 11,574$
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ACME House Cost Proposal Development
The proposed resources for the entire project have been priced as described
on the previous page. The following chart reflects the Total Price for eachWBS of the ACME Housing Building project.
ACME Housing Corporation1
$231,894
House BuildingProject 1.1$231,894
Concrete 1.1.1$59,094
Pour Foundation1.1.1.1$28,452
Install Patio1.1.1.2$11,574
Stairway 1.1.1.3$19,067
Framing 1.1.2$57,905
Frame ExteriorWalls 1.1.2.1
$22,026
Frame InteriorWalls 1.1.2.2
$14,699
Install RoofingTrusses 1.1.2.3
$21,180
Plumbing 1.1.3$25,018
Install WaterLines 1.1.3.1
$8,257
Install Gas Lines1.1.3.2$8,339
Install B/KFixtures 1.1.3.3
$8,421
Electrical 1.1.4$61,826
Install Wiring1.1.4.1$24,642
Install Outlets/Switches 1.1.4.2
$12,353
Install Fixtures1.1.4.3$24,831
Interior 1.1.5$20,447
Install Drywall1.1.5.1$9,312
Install Carpets1.1.5.2$2,500
Install Painting1.1.5.3$8,635
Roofing 1.1.6$7,605
Install Felt 1.1.6.1
$3,259
Install Shingles1.1.6.2$3,259
Install Vents1.1.6.3$1,086
Total Proposed Price = $231,894
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ACME House Cost Proposal Negotiations
Now lets review the proposed price and complete the negotiations.
The proposed price is $231,894; however, the buyer of the ACME house canonly afford to pay $220,000. The ACME house builder has agreed to buildthe ACME house for $219,999, but some revisions had to be made to theplans to utilize less expensive materials.
The following summary reflects the negotiated cost and price to build the
ACME House.
Negotiated ACME House Cost and Price
Total Cost Fee Total Price
$183,852 $36,147 $219,999
On the next page, lets look at the Total Price by WBS.
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ACME House Cost Proposal Negotiations
The following summary reflects the negotiated price by WBS to build the
ACME House.
ACME Housing Corporation1
$219,999
House BuildingProject 1.1
$219,999
Concrete 1.1.1$47,200
Pour Foundation1.1.1.1
$20,523
Install Patio1.1.1.2
$10,781
Stairway 1.1.1.3$15,895
Framing 1.1.2$57,905
Frame ExteriorWalls 1.1.2.1
$22,026
Frame InteriorWalls 1.1.2.2
$14,699
Install RoofingTrusses 1.1.2.3
$21,180
Plumbing 1.1.3$25,018
Install WaterLines 1.1.3.1
$8,257
Install Gas Lines1.1.3.2$8,339
Install B/KFixtures 1.1.3.3
$8,421
Electrical 1.1.4$61,826
Install Wiring1.1.4.1
$24,642
Install Outlets/Switches 1.1.4.2
$12,353
Install Fixtures1.1.4.3$24,831
Interior 1.1.5$20,447
Install Drywall1.1.5.1
$9,312
Install Carpets1.1.5.2$2,500
Install Painting1.1.5.3$8,635
Roofing 1.1.6$7,605
Install Felt 1.1.6.1
$3,259
Install Shingles1.1.6.2$3,259
Install Vents1.1.6.3$1,086
Total Negotiated Price = $219,999
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The Budgeting Process
Now that we have a negotiated contract, we can establish the Contract Budget
Base.
The Awarded Amount to the Builder is $219,999. This includes Profit/Fee.
The Negotiated Total Cost, without Profit/Fee, for the ACME House equals$183,852. This will be the basis for developing the Contract Budget
Baseline (CBB). Again, remember that this amount is exclusive of Fee.
Work Packages
Planning Packages
Control Accounts
Distributed Budgets Undistributed Budget (UB)
Performance Measurement Baseline (PMB) Management Reserve (MR)
Contract Budget Base (CBB)$183,852
Total Contract Cost$183,852
Profit/Fee$36,147
Total Contract Price$219,999
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The Budgeting Process
After the Contract Budget Base has been established, the Management
Reserve is established by the Program Manager.
In the case of the ACME House, the Program Manager has decided toestablish a Management Reserve amount equal to 10% of the ContractBudget Base. This equates to $18,385. The Performance MeasurementBaseline, which equals the CBBMR, will be established at $165,467.
All of the PMB will be distributed, therefore Distributed Budgets will equal$165,467, and Undistributed Budget will remain zero.
Work Packages
Planning Packages
Control Accounts
Distributed Budgets$165,467
Undistributed Budget (UB)$0
Performance Measurement Baseline (PMB)$165,467
Management Reserve (MR)$18,385
Contract Budget Base (CBB)$183,852
Total Contract Cost$183,852
Profit/Fee$36,147
Total Contract Price$219,999
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Module 4Budgeting
The Budgeting Process
Now that the Management Reserve has been established by the Program
Manager, target budgets are developed and distributed to the ControlAccount Managers.
Establishing the target budgets will often be accomplished through a joint effortby the Program Manager, Team Leaders, and the Control AccountManagers.
Work Packages
Planning Packages
Control Accounts
Distributed Budgets$165,467
Undistributed Budget (UB)$0
Performance Measurement Baseline (PMB)$165,467
Management Reserve (MR)$18,385
Contract Budget Base (CBB)$183,852
Total Contract Cost$183,852
Profit/Fee$36,147
Total Contract Price$219,999
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The Budgeting Process
In developing target budgets, applicable proposal information is relied upon
heavily. The proposal information is modified to reflect negotiated changesand to accommodate establishment of MR.
For example, remember the ACME House Proposal? Control Account 1.1.1Concrete, had a proposed Total Price of $59,094, however, based on finalcontract negotiations, the negotiated price was $47,200. The negotiatedcost, without Profit Fee was $39,424.
The following table summarizes the proposed vs. negotiated price for theConcrete effort. Remember, in establishing target budgets, Profit/Fee is notincluded.
Control Account 1.1.1 Concrete
Total Dollars Profit/Fee Total Price
Proposed $49,337 $9,757 $59,094
Negotiated $39,424 $7,776 $47,200
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The Budgeting Process
The Program Manager has decided to establish a Management Reserve (MR)
amount equal to 10% of the negotiated dollars. Once again, remember inestablishing target budgets Profit/Fee and Management Reserve are notincluded.
The target budget released to the Control Account Manager for 1.1.1 Concreteis $35,482 ($39,424$3,942 = $35,482).
Control Account 1.1.1 Concrete
Total Dollars
Negotiated $39,424
MR (10%) -$3,942
Target Budget $35,482
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The Budgeting Process
When detailed planning reveals the target budget established for the control
account is unrealistic (too high or low), the CAM, Team Leader andProgram Manager participate jointly to determine appropriate adjustments.In some cases, this may require the use of MR.
In the case of the Concrete Control Account, the Control Account Manager has
accepted the budget of $35,482.
Once the budgets have been allocated to the Control Accounts, the ControlAccount budgets are further subdivided into work packages and planningpackages.
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The Budgeting Process
Heres the distributed budget for the entire ACME WBS. Remember, this does
not include Profit/Fee, or Management Reserve.
ACME Housing Corporation1
$165,467
House BuildingProject 1.1
$165,467
Concrete 1.1.1$35,482
Pour Foundation1.1.1.1$15,394
Install Patio1.1.1.2$8,166
Stairway 1.1.1.3$11,922
Framing 1.1.2$43,432
Frame ExteriorWalls 1.1.2.1
$16,521
Frame InteriorWalls 1.1.2.2
$11,025
Install RoofingTrusses 1.1.2.3
$15,887
Plumbing 1.1.3$18,765
Install WaterLines 1.1.3.1
$6,194
Install Gas Lines1.1.3.2$6,255
Install B/KFixtures 1.1.3.3
$6,317
Electrical 1.1.4$46,373
Install Wiring1.1.4.1$18,483
Install Outlets/Switches 1.1.4.2
$9,265
Install Fixtures1.1.4.3$18,625
Interior 1.1.5$15,711
Install Drywall1.1.5.1$6,984
Install Carpets1.1.5.2$2,250
Install Painting1.1.5.3$6,477
Roofing 1.1.6$5,704
Install Felt 1.1.6.1$2,445
Install Shingles1.1.6.2$2,445
Install Vents1.1.6.3$815
Work Packages
Control Accounts
Distributed Budget = $165,467
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Module 4Budgeting
The Budgeting Process
Time phased budgets are prepared for each work package and planningpackage. Each work package and planning package contains a budgetdivided into time increments (typically monthly) by elements of cost, such asdirect labor, material, subcontract, and other direct cost (ODC).
During the phasing process, Management ensures that requirements will bemet, work sequences are logical, and resources are available to execute theplan.
The development of detail planning for the control account and ultimateapproval of the budget, schedule, and associated Work AuthorizationDocument (WAD) is accomplished through an iterative process.
A Work Authorization Document (WAD) authorizes and documents the workscope, schedule and budget to organizations supporting the project. Nowork is to proceed without a proper WAD.
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The Budget Process
The Control Account Manager (CAM) uses work packages and planningpackages to divide the control account into specific manageable andmeasurable units of work for the purpose of developing plans anddetermining progress.
Each work package and planning package is sequenced in a manner that
provides logical support for the program schedule. The CAM assigns eachwork and/or planning package a budget value in hours and/or dollars.
The sum of the work packages and planning package budgets are equal to thetotal budget assigned to the CAM on the work authorization form. The total
budget for the control account is time-phased in hours and dollars.
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Module 4Budgeting
Baseline Documentation
Summaries of schedules and budgets at the work package level are integrated
using a Control Account Plan (CAP). A CAP is a low level detail planprepared by the CAM showing time phased planning of tasks and theirassociated budget for a Control Account. The CAP also provides brief workpackage and milestone descriptions that enable the CAM to clarify anddifferentiate the unique content of each work package.
The CAM and Program Control develop the cost and schedule database byusing the control account planning documentation and other data. A seriesof checks and balances are performed to ensure the data is consistent.Upon completion of the baseline development, reports displaying theplanning data as it appears in the system are reviewed and verified foraccuracy.
The baselining process is complete when all Work Authorization Document(WADs) have been issued and accepted, and all CAPS have beendeveloped and equal the WAD budget amounts.
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Module 4Budgeting
Schedule and Cost Baseline
Below is the time-phased budget for the ACME House Building Project. This
profile represents the cost and schedule baseline in Total Dollars.
$38,269 $73,412 $49,130Total $165,467 $4,656
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Review of Module 4: Budgeting
Many new terms and concepts were presented in this module. Lets summarize
what was covered.The budgeting process establishes a means for developing and tracking the
cost goals for all contractually authorized work.
One of the key criteria for establishing an earned value management system isthat the scope, schedule and cost must be integrated and baselined. Thebaseline is what cost and schedule performance is measured against
ACME Housing Corporation1
$165,467
House BuildingProject 1.1$165,467
Concrete 1.1.1
$35,482
Pour Foundation1.1.1.1$15,394
Install Patio1.1.1.2$8,166
Stairway 1.1.1.3$11,922
Framing 1.1.2
$43,432
Frame ExteriorWalls 1.1.2.1
$16,521
Frame InteriorWalls 1.1.2.2
$11,025
Install RoofingTrusses 1.1.2.3
$15,887
Plumbing 1.1.3
$18,765
Install WaterLines 1.1.3.1
$6,194
Install Gas Lines1.1.3.2$6,255
Install B/KFixtures 1.1.3.3
$6,317
Electrical 1.1.4
$46,373
Install Wiring1.1.4.1
$18,483
Install Outlets/Switches 1.1.4.2
$9,265
Install Fixtures1.1.4.3
$18,625
Interior 1.1.5
$15,711
Install Drywall1.1.5.1$6,984
Install Carpets1.1.5.2$2,250
Install Painting1.1.5.3$6,477
Roofing 1.1.6
$5,704
Install Felt 1.1.6.1$2,445
Install Shingles1.1.6.2$2,445
Install Vents1.1.6.3$815
The Work Breakdown Structure is theframework used to facilitate therequirement of integrating scope,schedule, and cost.
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ACME Housing Corporation1
House BuildingProject
1.1
Concrete1.1.1
Pour Foundation1.1.1.1
Install Patio1.1.1.2
Stairway1.1.1.3
Framing1.1.2
Frame ExteriorWalls1.1.2.1
Frame InteriorWalls1.1.2.2
Install RoofingTrusses1.1.2.3
Plumbing1.1.3
Install WaterLines
1.1.3.1
Install Gas Lines1.1.3.2
Install B/KFixtures1.1.3.3
Electrical1.1.4
Install Wiring1.1.4.1
Install Outlets/Switches1.1.4.2
Install Fixtures1.1.4.3
Interior1.1.5
Install Drywall1.1.5.1
Install Carpets1.1.5.2
Install Painting1.1.5.3
Roofing1.1.6
Install Felt1.1.6.1
Install Shingles1.1.6.2
Install Vents1.1.6.3
Review of Module 4: Budgeting
A Control Account is an assigned WBS Level used to monitor the cost and
schedule performance of a significant element of the work.
Work Packages (WP) contain a discrete segment of work below the ControlAccount level and provide detailed planning for accomplishing the workwithin a Control Account.
Work Package / Planning Package Level
Control Account Level
Level 1
Level 2
Level 3
Level 4
Planning Packagesinclude efforts that willeventually be identifiedas separate workpackages within the
control account. Theyrepresent far termefforts that cannot bedefined in detail at thestart of the controlaccount.
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Module 4Budgeting
Review of Module 4: Budgeting
The major elements of an earned value contract consist of:
Contract Budget Base (CBB): The totalbudget, exclusive of fee, for allauthorized work
Performance MeasurementBaseline (PMB): The time-phased sum of all theallocated budgets
Management Reserve: The amount of the contract budget withheld byManagement
Undistributed Budget: Contractually authorized funds not yet allocated to WBSelements.
Work Packages
Planning Packages
Control Accounts
Distributed Budgets Undistributed Budget (UB)
Performance Measurement Baseline (PMB) Management Reserve (MR)
Contract Budget Base (CBB)
Total Contract Cost Profit/Fee
Total Contract Price
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Review of Module 4: Budgeting
At this point we have examined the basics of planning, scheduling, andbudgeting to establish the integrated baseline. These items lay thegroundwork for maintaining an Earned Value Management System (EVMS).The next module takes us into the details of Earned Value.
If you have a firm grasp of the concepts covered in these first four modules,
feel free to progress to the next module. Otherwise, review the modules toensure you have a solid understanding of the basics.
This concludes Module 4.